What is really striking is how effective it was to do this on Christmas Eve.
There were short stories in the Christmas papers, but now that it’s considered
old news, it’s nowhere to be found. Down the memory hole in 2 days.
To steal a line that used to be aimed at BushCo:

I’ll stop calling the Obama administration Orwellian
when they stop using 1984 as an operations manual.

So on Christmas Eve the Senate and the WH gave billions to Pharma and the Insurance Industries along with billions to Fannie and Freddie.

Had no idea that the “Change” that Obama was talking about during his campaign had to do with giving billions to these industries. Although I had my suspicions.

Of course the numbers are staggering, but doesn’t this line of credit directly stimulate the real estate market, home refinancing, and related small businesses? Isn’t this where the stimulus should have been going all along? Also, providing that all the risky loan shark schemes are now over, and regulated by government oversight… and since Fannie and Freddy have had shake ups in management, unlike the needed regulation of Wall Street or the banks, this revenue is the closest efficacy since the New Deal stimulus many moons ago. Including FDR’s war with a malevolent Supreme Court that strongly resembles today’s Republican antipathy.

And by providing these much needed loans for growth, there is a profit return on this credit. It should go without saying, this is a loan to be payed back. Bypassing congress is a no brainer considering the climate of Repubs and their suicide pact to destroy President Obama.

Maybe I’m wrong, but this sounds like something we should have done first.

The best solution would have been to give all that money directly to the homeowners, who then could have paid off their loans — instead of giving it to the banks and hope that they might then show mercy (which they really haven’t).

Jon, is there ANYTHING that can be done on this by Congress when it returns from recess?

I know, I know, “assumes a fact not in evidence,” i.e., that Congress would want to do anything, but there have to be some Republican blowhards out there that would love to make an issue of this.

PS – how “deficit neutral” is this give-away, compared to, oh, say the bill for real health care reform? [E.g., expansion of Medicare to 55, 45 or so.]

And by providing these much needed loans for growth, there is a profit return on this credit.

Exactly how did that line of reasoning work out with the TARP funds?

since Fannie and Freddy have had shake ups in management,

Management that’s “shook up” over receiving $4-$6 million in pay for last year.

That sounds like socialism!

Or rewarding bad behavior!

Or enabling mortgage cheaters!

All of which our government has shown it is entirely comfortable with on a wholesale level and loath to implement at the retail level.

$4-$6 million dollars each.

The entire executive compensation package is forty-two million dollars.

Does anybody know the total income of the US treasury from taxes?

I guess it would be more than taxes, it would be fines as well.

I can’t resolve if I should be sarcastic or questioning, so I’ll be both:

“these much needed loans for growth, there is a profit return on this credit”…

Sarcasm: Throwing more money at the FIRE sector won’t cause another bubble, and you know those funds will be used for purposes other than buying toxic assests from Wall St?

Questioning: Please could you explain how these funds will used, as you appear to have some knowledge of their planned use?

Ah, relief at last for long suffering wage erners….

Well, were they not to get their compensation, they might quit in a collective huff, and, uh, go, uhhhh….

Where’s the Senate “deficit neutral” crowd?

Jon:

Who are you claiming will benefit from this loan? The “owners” of these “companies?”

Cuz — these agencies are owned by the U.S. public.

Obama basically wants Congress to authorize a loan to a government-owned agency.

There is a lot of room to criticize Fannie Mae and Freddie Mac, but this is not it. It’s not about Rahm. It’s not about space aliens. It’s not about Reynolds aluminum wrap.

If you want to critique the policy, I suggest you read up and identify the stakeholders here and then make an attempt at demonstrating why or why not the continued bailout of the agencies is a bad idea. That is where the interesting story is.

I can remember when $4-6 million was a lot of money. Chump change by contemporary corruption standards. We should take a closer look, I’ll bet they’re double-dipping somehow.

So the only solution to problems in companies guaranteed by the U.S. govt is to provide a blank check on Christmas eve? That should work out well.

links?

Folks…? Why the outrage…? What’s a few billion here and there amongst friends…? ;-)

Posted earlier, but germane:
Does ObamaRham expect to be able to give money to the banks and mortgage companies through unaccounted billions funneled through Fannie and Freddie? Will guaranteeing 100% of their unsecured (through mindless irrational exuberance and the relentless pursuit of profit) and unsustainable portfolio losses then permit them to repossess and sell the homes of America’s middle class to themselves and their insider cronies disguised in shell companies for a nickel on a dollar? Will we all be renting from the banks’ board of directors?
Isn’t this basically what happened to the unsecured real estate loans made by the unregulated savings and loans under the Resolution Trust Corporation?
We need to mobilize and stop this!

Good point. If pols couldn’t squander a few billion before breakfast it might spoil their entire day.

Sure, here is something pretty good from Wikipedia:

http://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae_and_Freddie_Mac

The U.S. government owns around 80% of the agencies. The other twenty percent are legacy shares from prior to the conservatorship. A couple of clues here:

“The agreements were designed to protect the senior and subordinated debt and the mortgage backed securities of the GSEs. The GSEs’ common stock and existing preferred shareholders will bear any losses ahead of the government.”

The arrangement wiped out the owners of agency stock, but protected “people” who held agency debt.

More from a Seeking Alpha blogger:

http://seekingalpha.com/article/95160-foreign-bondholders-drove-the-fannie-freddie-bailout

“For anyone who still doubted the growing global influence of such emerging powerhouses as China, consider this: The U.S. government’s decision to take control of foundering mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) was driven not by worries about the fading U.S. housing market, but by concerns that foreign central banks in China, Japan, Europe, the Middle East and Russia might stop buying our bonds.”

China at one point had equal to 10% of its GDP invested in agency bonds! Even if its holdings are less than significant now, there is no way that Obama is going to let Freddie and Fannie go belly up.

How about closer regulation rather than a blank check?

Just why do they need such a big loan its not like they are doing much to stop home foreclosures?

Losses already incurred I think.

There is a huge need obviously as far as oversight is concerned. I don’t believe that Congress is performing adequately as a watchdog over what is going on either at the Treasury or the Fed.

But the Inspector General or another regulator is really only going to be able to say whether or not the agencies are correctly following the policy set up by the Treasury department.

That is not the issue with the loans.

The issue is the policy itself. Is it good or bad policy to continue to burn money on the pyre of Fannie and Freddie for the benefit of foreign debt-holders?

I don’t have an answer — or maybe it’s that both “yes” and “no” are pretty terrible answers.

Regardless, this is not about corruption, not about Rahm and not about agency leadership a decade ago. (Although I have plenty of bad things to say about corruption, Rahm and the agencies generally.)

Hank wrote a pretty hefty blank check, M’dear…! No strings attached either…! ;-)

Correct me if I’m wrong, but if they’re still on the books, aren’t they listed as assets, not losses? If all the banks rolled their losses up and actually declared them, wouldn’t the FDIC be a little busier?

O couldn’t wait to outerection Hank.

Not up on who regulates Fannie & Freddie, but don’t think it’s FDIC. I could be wrong.

Fannie and Freddie will have to give the money to someone, right? Banks are holding a lot of under-secured debt related to real estate.

Only if the money goes to keeping people in their homes and thus keeping home prices up otherwise its just being used to keep making payments on bank home loan paper that foreign governments and hedgefunds bought.
Think Enron the hedgefunds bought home loan paper with very cheap bank loans at $36 to every $1 of collateral. Then they used that as collateral to buy Chrysler, ClearChannel, Home Depot.
The value of the home loan paper has dropped the banks should be asking for more collateral from the hedge funds which is how Enron went under.
China and all the other countries who bought our home loan paper should be writing it all off as losses then there most likely act after that would be to stop buying T-Bills.
Obama wants China to keep buying our debt to keep his war going. Obama wants to avoid the banks which he owns to take over huge chunks of private industry.
Free Market capitalism has failed but Obama does not want to take over industry like a Socialist would.
Instead he is just giving the Free Market our money with no mention of payback much less profit for the *cough* loans.

Btw… We’re having an excellent discourse at EW’s…

During 2009, China hasn’t been buying many Treasuries and has been unloading dollars in a way that makes Geithner shiver at night.

There is an exchange traded fund TBT that shorts a long duration treasury proxy. The fund price goes up twice as fast as the price of treasuries goes down. Treasuries are sold by investors betting that interest rates will rise. Look at the last month — TBT has gone up from a low of $44 in November to $50 now. That’s a hefty boost in the expectation that interest rates will rise.

My expectation is that the treasuries will sell-off in the short run causing long term interest rates to rise. The Fed has declared that they will stop buying MBS in April which implies that the banks will now carry the paper. The rates banks charge will be coupled to the price of the ten year treasury which will have climbed up beyond affordability and will throttle consumer mortgage demand. That impacts whats left of the housing market and the whole thing stalls — just like Oct. 2007 when things went poof…

…At first I thought the new cap-less Fannie and Freddie would ameliorate this potential default catastrophe. But it won’t help to have a bigger balance sheet if the demand for debt stalls. Banks seeking to off-load bad debt may benefit in the short run, but economic activity will have stalled because monetary policy has no where to go and the new caps will only serve to over-price the next wave of toxic Mortgage Backed Securities. That is the same as making things worse because the real risk in mortgage paper will not diminish — it will be opaque.

Now that the stimulus parade is nearly over, the only thing left to do is sweep up the shit.

Are you sure the losses can’t get worse I don’t know who is lying about what or why in this economy anymore I trust the Lake and the Lefty Econ blogs but the amount of information is getting to be too much to keep track of.

That should be guarantees, not regulates.

FHFA (Federal Housing Finance Agency), I think.

Oh, NOW you tell me. :-)

These are concerns that investigating Rahm Emanuel or appointing a new IG are not going to resolve. This is my point.

The question is whether or not White House policy is good or bad here. I think it has bad consequences, but I can’t say that I see any alternative, either.

That’s the reason for the blank check.

Seconded plus no money wasted on bank CEO bonuses! The Lake should tackle this subject next that and a job stimulus plan.

Alternative is clear to me. Announce (& follow thru with) heavy duty regulatory oversight, while providing bailouts in dribs & drabs as needed. The only thing that makes this shit worth anything in the future is if processes are instated to minimize the chances that it will happen again. Current plan is moral hazard writ large, until the USG goes bankrupt.

Jane Hamsher is upstairs!
Emperor Lieberman Says No More “Epic Battles” This Session

See PW at 4 give the money directly to home owners and home prices don’t drop so much the the homeloan paper keeps more of its value. Plus we don’t waste cash on CEO bonuses. Right now we throw a bunch of money to keep paying interest due on homeloan paper.
But bankruptcies keep going up and that means less people paying their home loans and more bankruptcies means home prices go lower.
A $100,000 home forced into bankruptcy does not help the banks pay the homeloan paper interest if they resell at $80,000.
So thats where I think the money for Freddie and Fannie is going to make up the difference.

Blank check means they have no idea either how bad things will get just that We will pay:(

I guess where I disagree is on whether or not regulatory action against the agencies is going to accomplish anything. The agencies performed the role they were created to perform: They borrowed money from folks like China and then used it to buy mortgage-backed securities. From all appearances, the agencies complied in that role according to their charter.

The problems occurred elsewhere in the system, in the process by which mortgages were granted to borrows and the process by which bands were able to create highly-rated mortgage-backed securities out of loans that no one could ever pay off. My view is that this is where investigations should occur. No investigations, no remedial regulation of the banks and no threat of prosecution does indeed create moral hazard.

But getting back to the other main point, what do we do about China and the other foreign debt holders. Make them take their losses? Can we really do that?

Yikes, typos! “Borrows” is “borrowers” and “bands” is “banks,” etc.

@ nightmareending. the tea baggers and the economically hard-up are not one and the same. although i am sympathetic to both groups, their expectations are different. one group wants the government out of everything, probably thinking they created this mess, or may be more trouble than they’re worth; and the other wants relief, and thinks that it’s the government’s duty. the latter group probably doesn’t get that relief doesn’t come free, or why $100 doesn’t buy anything anymore. your statement presupposes that everybody wants more government. many are all for the consequences (especially to those that made bad bets) of hitting bottom and finally cleaning up.

taxpayer = stakeholder. dollars = stakeholder.

China & the U.S. are co-dependents. The status quo will continue as long as both countries continue their wrong-headed economic policies: overconsumption in the U.S. and underconsumption in China, to name only the most obvious. Until that changes the best that can be expected is managing the drug addicts (consumer spending in the U.S., jobs in China) as well as possible.

You are right about better regulation needed for commercial & investment banks. Scores of posts on this site to that subject. Not that it will happen under the current regime.

As for what the U.S. can do wrt to preventing wholesale abandonment of U.S. financial instruments by China (which wouldn’t be in China’s self-interest, as that action would trash the value of its existing “assets”), the O administration could place its actions in the full light of day. That would be a teeeinsy start.

There is only one bad guy in this mess and it certainly isn’t Rahm. His name is Barney Frank.

only one?
and you’re a fan of Rahm’s?

Absolutely.

Heavy regulation and rules that require banks to reduce their principle would be on the right track. The problem, that many don’t want to deal with is that a lot of people paid more than the house should have cost because the banks had artificially boosted prices. The mortgage economy is now wholly owned by the Federal government because anyone else would have to deal with market pressures. Higher interest and lower valuations on houses appear to be out of the question so the government is the market. Unfortunately keeping housing prices at artificially high values means that the big winner right now is the banks that can still sell their repossessed properties for more than the market would support if the government were not subsidizing the purchases.

The big losers are the people who thought HAMP was anything but a poison pill and the people who are buying houses that will not go up if the government ever removes their price supports. The third group that loses are those who, if the houses were to reach their market bottom, could then afford buy a house that was not a form of indenture due to the size of the loan.

Moral hazard is so completely removed from current circumstances that it is hard to see how we can remove the giant parasites from the government’s arteries. Now the dominant theme is that letting the financial bailout trickle-down on the rest of us is the only solution.

The story goes that the biggest purchasers of federal debt, by a wide margin, in 2009 were “households” which is catch all for none of the above Not other central banks, not foreign investors, not financial institutions and not mutual funds.

There is some speculation who else would have that kind of money laying around.

It’s rather telling that one of Rahm’s biggest fans here among the FDL commenters is a guy who walks and talks like a typical movement Republican, isn’t it?

They don’t Rahm to go away. They want him right where he is.